UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
10-QSB
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
FOR QUARTER ENDED JANUARY 31, 1998 COMMISSION FILE NO. 0-8512
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MONARCH SERVICES, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 52-1073628
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation)
4517 Harford Road, Baltimore, Maryland 21214
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code 410-254-9200
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Not applicable
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Former name, former address and former fiscal year, if changed since last
report.
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
YES [ X ] NO [ ]
As of January 31, 1999, the number of shares outstanding of the issuer's common
stock was 1,619,820 shares.
Transitional Small Business Issue Format (check one): YES [ ] NO [ X ]
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
MONARCH SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
<CAPTION>
January 31, April 30,
1999 1998
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<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $7,387 $1,738
Accounts receivable, net 354 973
Inventories, net 236 1,968
Other current assets 81 47
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TOTAL CURRENT ASSETS 8,058 4,726
PROPERTY AND EQUIPMENT 4,619 4,634
Less allowance for depreciation (4,192) (4,076)
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427 558
OTHER ASSETS AND DEFERRED CHARGES 11 45
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TOTAL ASSETS $8,496 $5,329
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 95 $ 352
Accrued expenses 281 723
Income taxes payable 101 0
Deferred subscription revenues 1,407 1,024
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TOTAL CURRENT LIABILITIES 1,884 2,099
STOCKHOLDERS' EQUITY
Preferred Stock - par value $.01 per share:
Authorized 100,000 shares; no shares
issued
Common Stock - par value $.25 per share:
Authorized 3,000,000 shares; shares
issued - 2,109,985; shares outstanding
1,619,820 on January 31, 1999 and
April 30, 1998 527 527
Capital surplus 3,378 3,378
Retained earnings 2,829 (553)
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6,734 3,352
Treasury stock at par - shares
outstanding 490,165 on January
31, 1999 and April 30, 1998 (122) (122)
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6,612 3,230
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $8,496 $5,329
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<FN>
See notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
MONARCH SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<CAPTION>
Three Months Ended Nine Months Ended
January 31, January 31,
---------------------------------------
1999 1998 1999 1998
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(000's omitted, except per share data)
<S> <C> <C> <C> <C>
Net sales $ 1,173 $ 1,131 $ 4,278 $ 3,507
Cost of goods sold 1,178 1,338 3,526 3,301
------- ------- ------- -------
Gross profit (loss) (5) (207) 752 206
Selling, general and
Administrative expenses 418 204 957 906
------- ------- ------- -------
Loss from continuing
operations before other
income (423) (411) (205) (700)
Other income, net 33 17 61 52
------- ------- ------- -------
Loss from continuing
operations (390) (394) (144) (648)
Discontinued Operations:
Operating loss from
games division - (292) (279) (288)
Gain on disposal of games
business (less income taxes
of $516 for the nine months
ended January 31, 1999) 62 0 3,805 0
------- ------- ------- -------
Net income (loss) (328) (686) 3,382 (936)
------- ------- ------- -------
Income (loss) per share $ (0.20) $ (0.42) $ 2.09 $ (0.58)
------- ------- ------- -------
Weighted average shares
outstanding 1,619,820 1,619,820 1,619,820 1,619,820
--------- --------- --------- ---------
<FN>
See notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
MONARCH SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
Nine Months Ended
January 31,
-----------------
1999 1998
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(000's omitted)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 3,382 $ (936)
------- -------
Adjustments to reconcile net income
(loss) to net cash used in operating
activities:
Gain on disposal of games business (3,805) 0
Depreciation and amortization 116 97
Changes in accounts receivable,
inventories, other assets, accounts
payable, accrued expenses, deferred
subscription revenue and income
tax payable (59) 366
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Net cash provided by (used in)
operating activities (366) (473)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment 0 (118)
Cash proceeds from sale of equipment 15 0
Cash proceeds from sale of substantially
all the assets of the games division 6,000 0
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Total cash provided by (used in)
investing activities 6,015 (118)
Net increase (decrease) in cash
and cash equivalents 5,649 (591)
Cash and cash equivalents at beginning of
period 1,738 2,131
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Cash and cash equivalents at end of period $7,387 $1,540
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<FN>
See notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
MONARCH SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include Monarch
Services, Inc. ("Monarch"), formerly Monarch Avalon, Inc., and its wholly-owned
subsidiary, Girls' Life, Inc. (Monarch and Girls' Life Inc. collectively
referred to herein as "the Company") have been prepared in accordance with the
instructions to Form 10-QSB and do not include all of the information and
disclosures required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals and charges) considered necessary for a fair
presentation have been included. All material intercompany balances between
Monarch and its subsidiary have been eliminated in consolidation. Operating
results for the nine months ended January 31, 1999 are not necessarily
indicative of the results that may be expected for the year ending April 30,
1999. For further information, reference should be made to the financial
statements and notes included in the Company's annual report on Form 10-KSB for
the fiscal year ended April 30, 1998.
NOTE B - SALE OF GAMES DIVISION
On October 27, 1998, the Company sold substantially all the assets of the games
division to a subsidiary of Hasbro, Inc. for $6,000,000 in cash. The assets
sold included trademarks, copyrights and other intellectual property rights,
inventory and tooling. The operating results of the games division have been
classified as discontinued operations for all periods presented in the
consolidated statements of operations.
NOTE C - ACCOUNTS RECEIVABLE
Accounts receivable are net of the following allowances:
January 31, 1999 April 30, 1998
---------------- --------------
(000's omitted)
Doubtful accounts $142 $142
Customer returns 0 45
---- ----
$142 $187
NOTE D - INVENTORIES
For quarterly reporting purposes, Monarch values inventory using both
perpetual records and physical counts, while at year-end values are
determined solely on the basis of physical counts.
The major components of inventories consist of the following:
January 31,1999 April 30, 1998
--------------- --------------
(000's omitted)
Raw materials $ 196 $ 694
Work in progress 2 174
Finished goods 38 1,100
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$ 236 $1,968
The above components are shown net of lower of cost or market reserves of
$65,000 at January 31, 1999 and $350,000 at April 30, 1998. On October 27,
1998, the Company sold substantially all the assets of the Games division. All
games inventories were transferred to Hasbro, Inc. as part of the sales
agreement. The remaining inventories at January 31, 1999 relate entirely to the
printing segment of Monarch Services, Inc. The Company values its inventories
at the lower of cost (first-in, first-out) or market.
<PAGE>
ITEM II MONARCH SERVICES, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For purposes of this discussion references to "fiscal 1999" are to the fiscal
year ending April 30, 1999, and references to "fiscal 1998" are to the fiscal
year ended April 30, 1998.
CERTAIN CAUTIONARY INFORMATION
In connection with the Private Securities Litigation Reform Act of 1995 (the
"Litigation Reform Act"), the Company is hereby disclosing certain cautionary
information to be used in connection with written materials (including this
Report on Form 10-QSB) and oral statements made by or on behalf of its employees
and representatives that may contain "forward-looking statements" within the
meaning of the Litigation Reform Act. Such statements consist of any statement
other than a recitation of historical fact and can be identified by the use of
forward-looking terminology such as "may," "expect," "anticipate," "estimate" or
"continue" or the negative thereof or other varations thereon or comparable
terminology. The listener or reader is cautioned that all forward-looking
statements are necessarily speculative and there are numerous risks and
uncertainties that could cause actual events or results to differ materially
from those referred to in such forward-looking statements. The discussion
contained in the Company's Annual Report on Form 10-KSB for the year ended April
30, 1998 and incorporated herein by reference highlights some of the more
important risks identified by management, but should not be assumed to be the
only factors that could affect future performance. Included in these risks is
the Company's history of losses, its fluctuations in operating results,
competition and other risks set forth herein and in the Company's annual report
on Form 10-KSB for the year ended April 30, 1998. The reader or listener is
cautioned that the Company does not have a policy of updating or revising
forward-looking statements and thus he or she should not assume that silence by
management over time means that actual events are bearing out as estimated in
such forward-looking statements.
RESULTS OF OPERATIONS
Monarch Services, Inc. consists of one division, printing, and one subsidiary,
Girls' Life, Inc., that publishes a magazine.
On August 4, 1998, the Company announced that it had entered into a definitive
agreement to sell substantially all the assets of the games division of the
Company to a newly formed subsidiary of Hasbro, Inc. for $6,000,000 in cash.
The assets sold include trademarks, copyrights and other intellectual property
rights, inventory and tooling. In light of the Company's sales of the assets of
the games division, the Company has taken steps to cut costs related to the
games division. Such steps have included curtailment of the research and
development and sales and marketing activities of the games division and layoffs
of games division employees. The sale of substantially all of the assets of the
games division was completed on October 27, 1998.
RESULTS FOR THE THIRD QUARTER OF FISCAL YEAR 1999 AND 1998
Net sales increased by $42,000 or 4% in the third quarter of fiscal 1999 as
compared to the third quarter of fiscal 1998.
Sales in the printing division decreased by $339,000 in the third quarter of
fiscal 1999 or 50% from the third quarter of fiscal 1998. Sales of the
Publishing division in the third quarter of fiscal 1999 increased by $379,000 or
83% from the third quarter of fiscal 1998. The increase in sales of the
Publishing division relates primarily to the increase in promotions and direct
mailing advertising of the magazine and increased revenue from newsstand sales
and advertising.
Gross profit increased by $202,000 or 98% during the third quarter of fiscal
1999 compared to the third quarter of fiscal 1998. Gross margin was negative
0.4% during the third quarter of fiscal 1999 as compared to negative 18% during
the third quarter of fiscal 1998. The increase in gross margin is primarily due
to the increase in Publishing sales offset by the decrease in Printing sales.
Gross margin for the Publishing division was 22% and Printing was a negative 57%
in the third quarter of fiscal 1999.
Operating expenses were 36% of net sales in the third quarter of fiscal 1999 as
compared to 18% in the third quarter of fiscal 1998. Operating expenses for the
third quarter of fiscal 1999 increased by $214,000 or 105% from the same period
in fiscal 1998, primarily because of operating expenses that were charged to the
games division for the third quarter of fiscal 1998 that after the sale of the
games division are charged to operating expenses for the third quarter of fiscal
1999 and increased operating expenses of the Publishing division related to
advertising and promotions.
RESULTS FOR THE FIRST NINE MONTHS OF FISCAL YEAR 1999 AND 1998
Net sales increased by $771,000 or 22% in the first nine months of fiscal 1999
as compared to the same period in fiscal 1998. Sales in the printing division
for the first nine months of fiscal 1999 decreased by $397,000 or 21% from the
same period in fiscal 1998. Sales of the Publishing division for the first nine
months of fiscal 1999 increased by $1,168,000 or 73% compared to the same period
in fiscal 1998 as a result of promotions and direct mail advertising of the
magazine and increased revenue from newsstand sales and advertising.
Gross profit increased by $546,000 or 265% for the first nine months of fiscal
1999 as compared to the same period in fiscal 1998. Gross margin was 18% during
the first nine months of fiscal 1999 as compared to 6% for the same period
during fiscal 1998. The net increase in gross margin primarily relates to the
increase in Publishing sales as partially offset by the decrease in printing
sales. Gross margin for the Publishing division was 35% and Printing was a
negative 14% for the first nine months of fiscal 1999.
Operating expenses increased $51,000 or 6% for the first nine months of fiscal
1999 as compared to the same period in fiscal 1998. Operating expenses
represented 22% and 26% of net sales for the first nine months of fiscal 1999
and 1998, respectively. The increase in operating expenses primarily relates to
overhead expenses that were charged to the games division for the first nine
months of fiscal 1998 that after the sale of the games division are charged to
operating expenses as partially offset by decreases in the operating expenses of
the Printing and Publishing divisions.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 1999, the Company has cash and cash equivalents of approximately
$7,387,000 an increase of $5,649,000 from the amount at April 30, 1998. The
increase resulted from the sale of substantially all the assets of the games
division for $6,000,000 cash. The Company's cash and cash equivalents are
subject to variation based upon the timing of receipts and the payment of
payables.
At January 31, 1999, the Company has no debt with third party lenders.
<PAGE>
YEAR 2000 DISCLOSURE
During the next two months, The Company will be replacing the existing software
and hardware at an estimated cost of under $40,000. Company management does not
believe the change over to new software and hardware will have a material effect
on the Company's business, operations or financial condition. A survey has been
mailed to the customers and vendors of the Publishing division to verify that
they will be Year 2000 compliant. Substantially all of the Publishing surveys
have been returned and all of the surveys indicate they will be Year 2000
compliant. The Printing division vendors and customers will be analyzed within
the next month and a similar survey will be mailed to the customers and vendors
prior to the end of our fiscal year. As part of it,s Year 2000 contingency plan,
the Company has identified alternative suppliers for it's key raw materials. If
a substantial number of the Companys suppliers and/or customers experience
significant Year 2000 problems, the Company may be materially and adversely
affected.
PART II. OTHER INFORMATION
ITEMS 1 THROUGH 5
NONE / NOT APPLICABLE
ITEM 6. EXHIBITS AND REPORTS FOR FORM 8-K
(a) Exhibits
Number Description
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27. Financial Data Schedule
(b) Reports on Form 8-K
No reports have been filed on Form 8-K during this
quarter.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
MONARCH SERVICES, INC.
Date 03/17/99 By /s/ A. Eric Dott
-----------------------------
A. Eric Dott
Chariman of the Board
Date 03/17/99 /s/ A. Eric Dott
-----------------------------
A. Eric Dott
Chairman of the Board
(Principal Executive Officer)
Date 03/17/99 /s/ Marshall Chadwell
-----------------------------
Marshall Chadwell
Chief Financial Officer
(Principal Accounting and
Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CAPTION>
EXHIBIT 27
Article 5
The schedule contains summary financial information extracted from Monarch
Services, Inc.'s unaudited financial statements for the period ended January 31,
1998, and is qualified in its entirety by reference to such financial statements
and the notes thereto.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Apr-30-1999
<PERIOD-START> May-01-1998
<PERIOD-END> Jan-31-1999
<CASH> 7,387
<SECURITIES> 0
<RECEIVABLES> 354
<ALLOWANCES> 142
<INVENTORY> 236
<CURRENT-ASSETS> 8,058
<PP&E> 4,619
<DEPRECIATION> 4,192
<TOTAL-ASSETS> 8,496
<CURRENT-LIABILITIES> 1,884
<BONDS> 0
0
0
<COMMON> 527
<OTHER-SE> 6,612
<TOTAL-LIABILITY-AND-EQUITY> 8,496
<SALES> 4,278
<TOTAL-REVENUES> 8,083
<CGS> 3,526
<TOTAL-COSTS> 4,483
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (144)
<INCOME-TAX> 0
<INCOME-CONTINUING> (144)
<DISCONTINUED> 3,526
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,382
<EPS-PRIMARY> 2.09
<EPS-DILUTED> 2.09
</TABLE>
